Gross domestic product (GDP) measures a country's economic output. It is one of the most important economic indicators that can tell you how the U.S. economy is doing.
There are five GDP statistics that can give you a look into the health of the U.S. economy. Nominal GDP is the basic measure of economic output. Real GDP corrects for changes in prices. The GDP growth rate measures how fast the economy is growing (or contracting). Real GDP per capita describes people's standard of living in the U.S., and the debt-to-GDP ratio describes whether America produces enough each year to pay off its national debt.
The Bureau of Economic Analysis releases data on each of these measurements, with the most recent report discussing the second quarter of 2021, which you can see below.
|5 Ways To Measure the US Economy|
|Nominal GDP||$22.7 trillion||Measures economic output of the entire country|
|Real GDP||$19.4 trillion||GDP without inflation|
|GDP Growth Rate||6.7%||Annualized rate that shows increase or decrease of economic output|
|Real GDP per Capita||$58,478||Estimates standard of living|
|Debt-to-GDP Ratio||125.5%||Determines whether annual income can pay off debt|
U.S. gross domestic product was $22.7 trillion for the second quarter of 2021. U.S. GDP is the economic output of the entire country. It includes goods and services produced in the U.S. To find out the total economic output for all American citizens and companies, regardless of their geographic location, you'd want to look at U.S. gross national product, also known as gross national income.
There are four components of nominal GDP:
- Personal consumption expenditures: All the goods and services produced for household use—it's usually almost 70% of total GDP
- Business investment: Goods and services purchased by the private business sector
- Government spending: Includes federal, state, and local governments
- Net exports: The dollar value of total exports minus total imports
Real GDP was $19.4 trillion for Q2 2021. This measure takes nominal GDP and strips out the effects of inflation. That's why it's usually lower than nominal GDP.
It's the best statistic to compare U.S. output year-over-year, so that's why the BEA uses it to calculate the GDP growth rate. It's also used to calculate GDP per capita.
GDP Growth Rate
The current GDP rate is 6.7% as of Q2 2021. This indicator measures the annualized percentage increase in economic output since the last quarter. It's the best way to assess U.S. economic growth.
If you look at GDP by year, you'll see this is a large increase in growth. The ideal growth rate is between 2% and 3%.
The Federal Reserve may take action to lower the growth rate if it rises higher than 3%, but it depends upon other economic factors.
GDP Per Capita
For Q2 2021, the U.S. real GDP per capita was $58,478. This indicator tells you the economic output by person and is the best estimate of the standard of living.
To compare the per capita GDP among countries, you can use purchasing power parity. It levels the playing field among them by comparing a basket of similar goods and taking out the effects of exchange rates.
The U.S. debt-to-GDP ratio for Q2 2021 was 125.5%. That's the total U.S. debt of $28.4 trillion at the end of August, divided by the nominal GDP of $22.7 trillion. Bond investors use this ratio to determine whether a country has enough income each year to pay off its debt.
The U.S. debt-to-GDP ratio level is currently too high. The World Bank says that debt greater than 77% is past the "tipping point." The tipping point is where each percentage point increase in debt decreases annual real growth by .017 percentage points. There is also an increase in the risk that a country cannot repay its debts.
When interest rates climb, economic growth slows. That makes it more difficult for the country to repay its debt. The U.S. has avoided this fate so far because it is one of the strongest economies in the world.
Even when the economy was growing at a 2% to 3% healthy rate, the federal government did not reduce the debt. Instead, it kept spending at an unsustainable level.
If you review the national debt by year, you'll see only one other time the debt-to-GDP ratio was even close to the current level. The debt-to-GDP ratio rose to 119% in 1946 to pay for World War II. Following that, it remained safely below 77% until the 2008 financial crisis. The combination of lower taxes and higher government spending pushed the debt-to-GDP ratio to unsafe levels, where it has remained.